Meeting reality

2008-09-23

Whilst Wall Street is in shambles, and the Central Asia pipeline projections have met a brick wall of reality, there
seems to be an eerie silence around the oil price and the attached global developments.

The projections for demand will need to be reviewed, as we see that demand-destruction in the US is now approaching
the 8 â€“ 10 percent on year-basis, demand-growth in China is slowing down and several high-flying
mega, and partly megalomaniac, projects in the Middle East are being caught up by the reality of either the
banking-crisis or unrealistic reserve and supply expectations.

The oilsands in Canada are in the books for several millions of barrels per day in the coming decades, but have
already reached their limit due to the pollution they are causing and most LNG-projects are severely delayed and in
no way living up to their promise or projection.

When we add to this the changing balances in the refinery industry that are on its way, due to a large amount of
refineries being constructed and planned, but no incremental supply either expected or possible, the picture
becomes opaque.

The oil price is now hovering around the 100 dollar, which seems to be the best balance at the moment between what is
needed and what is possible, and whilst the prices at the pump seem not to have realised yet that the fundamentals
have changed, the people on the street hope this will happen soon.

The world seems to approach unstable times, and in many ways will need to concentrate on its fundamentals. We can
only hope that in general the gap between showed reality and fundamental reality may not be as big as with the banks
and trading-houses that recently have met a more fundamental reality. In many cases the banks were working with a
self-created bubble that was up to 40 times their fundamental, real, capital. In other words there was only 2,5 %
cover in those cases. And although maybe not so far stretched out, we may wonder how things stand in many other
branches.

What would happen, to the world, and to the oil price, if we are meeting reality and are forced back to
fundamentals?

If fundamentals are only a few percent of what is now displayed as reality, the world may find itself in a very
different place in only a few years time, as we will not only be brought back to fundamentals, but also will start to
meet the consequences of our, mainly the West”s, outrageous behaviour, in the form of climate-change,
water-shortage and many other “collateral damage”.